Results of Analysis by Equilibrium Price Model

2 – 1 Results by 107 aggregated sectors table

In the agriculture, forestry and fishery sectors and food industry, the rising rate of the average price for domestic products was the highest, 4.3%, for fishery sector, followed by the agricultural service sector 2.1%, while the surge in world crude petroleum price had a relatively small impact on the food industry and food service sectors. In the agri–business sectors, the rising rate of the average price was 5.1% for chemical fertilizers and 2.7% for agricultural chemicals, which can be considered to reflect the large share of petroleum products in the production costs for these products. These results are natural in the fishery and chemical fertilizer sectors where the main materials are petroleum products. The surge of the world crude petroleum price had not a great impact on the crop cultivation sector including

“horticulture in facilities”.

Also, it had not a great impact on the food industry through packaging materials such as plastic film.

Table 1: Rising Rate of Producer Price and Decreasing Rate of Net Product (%)

Sector Rising rate of producer price Decreasing rate of net product Crop Cultivation

Livestock

Agricultural service forestry

Fishery Food Industry

Feed & Organic Fertilizer Chemical Fertilizer Agricultural Chemical Agricultural Machinery Food Service

1.8 1.6 2.1 1.7 4.3 1.5 1.5 5.1 2.7 1.4 1.3

3.7 10.0

5.0 2.2 9.9 5.3 9.4 23.9 10.0 4.2 3.6

Here, consider the “worst case” where the increase in production cost cannot be passed on to the price for domestic commodities in a sector, while it is done in the other sectors. ²

In this case, the amount of intermediate inputs as an item of production cost increases, while the amount of domestic production is invariable because the prices for products cannot be increased. To recover the balance, therefore, it is necessary to reduce the “net product” which is the value added, especially the total of “wage” and “operating surplus”. The decreasing rate of the net product is given in the right column of Table 1. It is 23.9% for chemical fertilizer, and around 10% for livestock, fishery, and feed & organic fertilizer, depending on the net product in each sector. This means that the decreasing rates of the net products will have great impacts on the profits in these sectors, unless the prices for commodities can be rising.

2 – 2 Results by sector

In the basic sector classification used in the input-output tables for Japan, there are not a few sectors where the number of rows (horizontal) does not correspond to the number of columns (vertical). For example, the “vegetable” sector has one (1) row and two (2) columns of

“vegetables grown outdoors” and “vegetables grown in facilities”. However, it is not necessary to distinguish the output of “vegetable grown outdoors” from that of “vegetable grown in facilities”, because both “vegetables” can be classified into the same item of commodities or vegetables. However, 2 columns of “vegetables grown outdoors” and

“vegetables grown in facilities” are formed, because the structure of production cost for vegetables grown outdoors is considerably different from that for vegetables grown in facilities.

Therefore, it is generally impossible to form the equilibrium price model for the sectors where the number of rows does not correspond to the number of columns. It is generally possible to aggregate the sectors so that the number of rows does not correspond to the number columns. In this case, however, the change rate of the average price only for vegetables in facilities cannot be determined.

Therefore, I prepared the table comprising columns according to the basic sector classification and rows according to the 107 aggregated sectors table, and estimated the impacts of the surging world crude petroleum price based on the basic sector classification. If a basic

2 In this case, the solution is obtained by removing the sector from the equation (2) consisting of simultaneous equations for the number n of sectors, setting the rising rate of the average price in the sector at zero (0), and solving the simultaneous equations for the number (n – 1) of other sectors. This procedure is called “1 sector exogenous process”.

sector in the basic sector classification is assumed as “j”, the production cost increase in the sector j, Δ cost j, is given by the following equation:

107

Δcost j =∑(xij^(d) Δpi^(d) +x ij^(m) · Δpi^(m)) i=1

Thus, the rising rate of the average price in the sector j may be approximately determined by using the equation Δpj^(d) =Δcost j / Xj. Here, {Δpj^(d)} is the solution obtained by using the equilibrium price model for each of 107 sectors.

Of the results, the data for the sectors on which the rapidly increasing world crude petroleum price may have the greatest impacts are given in Table 2.

The rapidly increasing world crude petroleum price may have a great impact on fishery sectors, especially distant water fisheries. It may have a relatively great impact on the agricultural sectors such as mushrooms & minor forest products (of which the main products are mushrooms), flowers & plants, and vegetables in facilities, which are mainly produced in facilities (factories).

Table 2: Rising Rate of Producer Price and Decreasing Rate of Net Product (%) by Sector Sector Rising rate of producer

price

Decreasing rate of net product Distant water fisheries

Off-shore fisheries Inland water culture

Mushrooms & minor forest products Coastal fisheries

Flowers and plants Vegetables (in facilities)

7.6 6.0 4.3 4.2 3.8 3.5 3.1

22.2 14.9 29.9 22.1 6.9 7.1 5.6

The increase in production cost due to the rising prices of crude petroleum and petroleum products can be divided into the (direct) fraction due to the rising prices for petroleum products and the (indirect) fraction due to packaging materials and freights. Fig. 2 shows the direct and indirect fractions of the production cost increase. The direct fraction is greater for the sectors such as vegetables in facilities, flowers & plants and fisheries, while the indirect fraction is greater for the other sectors, especially mushrooms & minor forest products. Especially in the sector of mushrooms & minor forest products, it is estimated that a great amount of electric power, classified into the indirect fraction, is used to produce mushrooms as the main products.

The solution obtained by using the equilibrium price model for each of 107 sectors was converted into the rising rate of the consumer price index by using the weight of private final consumption expenditure. Thus, the rising rate of the consumer price index was estimated at 2.29%. At present, it is unlikely to reach the value probably for the reasons that it will take a considerable time for the rising price of crude petroleum to have an influence on sectors and that the consumer price index does not easily reflect the rising prices of products in the environment where the Japanese economy is recovering.

Fig. 2: The Increasing Cost (Agriculture, Forestry and Fishery Sectors)